The Economic Survey 2012-13 pegs the contribution of the real estate sector at 5.2 per cent of the gross domestic product (GDP) in FY12,registering a growth of 7.2 per cent from the previous year. “That can be substantially higher if we have the right framework in place,” says Anil Kumar Sharma,president,CREDAI-NCR.

A recent white paper ‘Housing: The Game Changer’ released by the Confederation of Real Estate Developers’ Associations of India (CREDAI) says that advanced economies such as the United States have the real estate industry contributing as high as 16 per cent to that country’s GDP. A major portion of the growth within real estate,if unleashed,would come from the affordable housing sector where the demand is maximum. “There is a demand for 15 million homes and the demand for these homes comes from buyers with an income of Rs 10,000-25,000 per month,” says Vikram Jain,lead,low-income housing practice at Monitor Deloitte,a management consulting firm.

That said,the first eight months of the current fiscal have not been very favourable for the real estate sector. A slowdown in the economy,high interest rate environment and high property prices have seen consumer sentiment continually being low,as was witnessed in the recently concluded festival season that failed to make a mark.

Recent studies have shown that on an average,the number of new residential launches during this calendar,fell by 12 per cent. The National Capital Region saw the maximum decrease at 33 per cent at 38,411 units launched during the whole of the year. The segment that has borne the biggest brunt of is affordable housing,launches of which dipped the maximum 25 per cent. “Residential property prices continued to exhibit upward movement even as the weakening rupee steadily eroded purchasing power,” says Anuj Puri,chairman and country head,Jones Lang LaSalle India in a research note.

The gloomy scenario notwithstanding,there are indications that the industry may see better times going forward. The Reserve Bank of India,in its third quarter review of the monetary policy chose to maintain status quo on key policy rates,giving the markets and bankers a pleasant surprise. This is being read as a signal that the central bank is now pushing for growth,after focusing its action so far on combating inflation.

There is huge demand for housing in the country that if addressed rapidly,can be a significant growth driver for the economy. In 2012,the ministry of housing estimated that the current shortage in housing stood at 18.78 million units,of which nearly 95 per cent affected the lower strata of the population.

A study carried out by real estate consultancy Cushman & Wakefield says that the demand for urban housing is expected to increase by an additional 12 million units by 2017 taking into account the present growth rate of the population alone. Of this,23 per cent of the total demand will be generated by the top eight cities in the country. To meet this demand,“an additional investment of Rs 106.54 lakh crore would be needed at today’s values to meet the housing shortage by 2017”,the study says. That kind of investment into creating new housing stock would bring about ripple effects in the economy,if channelled well. However,the CREDAI white paper identifies several impediments that can stall this progress.

The first challenge is implementation. Project delays are increasingly becoming commonplace. A study by Jones Lang LaSalle India showed that on an average,25 per cent of the committed supply has not been able to hit the market in time. One factor is the slack in the supply chain: raw materials,labour and difficulty in accessing funding. The bottlenecks in funding have led developers to resorting to innovative schemes such as interest subvention and tri-partite agreements with customers and banks in order to access funds. The RBI has,however,banned the practice.

The second reason for the delay is the long-drawn process to obtain regulatory clearances,that can take anywhere between 18-36 months in metro cities. There have been some progress in this field. Cities such as Ahmedabad,Chennai,Kochi,Pune etc are progressing towards an automated system for approving building plans. Mumbai will soon join this list.

The second major challenge is the scarcity of developable land,that is land with basic infrastructure in place. This is the major reason for the stratospheric house price increases across cities. CREDAI calls for redensification of cities to augment supply and also cater to the migrating population. One indicator of the problem is the abysmally low floor space index in major cities. In Delhi,the FSI value is on an average 3.50,while the island city of Mumbai has a paltry 1.33. Contrast this with an FSI of 15 for downtown New York and 12 for land-stressed Hong Kong.

These are the major policy challenges that developers expect government to address,in order to get the wheels of the sector chugging. Investors are not giving up,however. Overthe next six months,there are expectations that the tide may turn towards greater receptivity to foreign investments and the general climate becoming investment-friendly,according to a a report by PricewaterhouseCoopers on Asia-Pacific real estate. “Interest remains high,however,” the report sums up its take on the country.